Responses to shareholders on substantial and relevant questions raised for
Keppel Corporation's 55th Annual General Meeting
Singapore, 15 April 2023 - Keppel Corporation Limited ("Keppel" and the "Company") would like to thank shareholders for submitting questions ahead of the Company's 55th Annual General Meeting to be held on Friday, 21 April 2023 at 3.00 p.m. (Singapore time).
Due to overlaps in several of the questions received, the Company will not be providing individual responses to every question. Instead, responses to substantial and relevant questions have been set out via the following topics:
- Vision 2030 Transformation
- Business and Operations
- Shareholder Returns, Dividends and Share Buyback Programme
Please refer to the Company's responses set out in Appendix 1. Unless otherwise defined, all capitalised terms shall bear the same meanings ascribed to them in the circular issued by the Company dated 23 November 2022 (the "Circular").
By Order of the Board
Caroline Chang/Samantha Teong
Company Secretaries
15 April 2023
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Appendix 1 | ||
VISION 2030 TRANSFORMATION | ||
S/N | Question | Response |
1 | Can Keppel provide an update | In 2022, we accelerated the execution of our Vision 2030 |
of the Company's progress in its | plans, simplifying and focusing our business as we advanced | |
Vision 2030 plans? | on our asset-light strategy. We successfully divested Keppel | |
Logistics1 and Keppel Offshore & Marine (KOM), and | ||
reached a resolution of our legacy rigs and associated | ||
receivables. We have also progressively monetised our | ||
landbank and non-core assets. | ||
The Group has made significant progress in asset | ||
monetisation, with over S$4.6 billion in asset monetisation | ||
announced by end-December 2022, since the start of the | ||
programme in October 2020. Several more divestments have | ||
been announced in 1Q 2023 and we are on track to exceed | ||
the S$5 billion target in 2023. | ||
Harnessing synergies as one integrated business and in line | ||
with our asset-light model, we announced about S$2.8 billion | ||
worth of energy & environment and sustainable urban | ||
renewal-related investments in 2022, jointly undertaken by | ||
Keppel together with the private funds and/or business trust | ||
managed by Keppel Capital. | ||
We continue to pivot away from lumpy profits in the | ||
orderbook and property development business to focus on | ||
expanding recurring income. In FY 2022, the Company more | ||
than doubled its recurring income on a year-on-year basis to | ||
S$560 million, compared to S$262 million in FY 2021. | ||
We have announced that in the next phase of Keppel's Vision | ||
2030 transformation, we will evolve into a global asset | ||
manager with strong operating capabilities, focused on | ||
creating sustainability-related solutions. | ||
2 | Keppel's discontinued offshore | Although Keppel recognised S$88 million in net profit from its |
& marine (O&M) business | discontinued O&M operations in FY 2022, this was mainly | |
turned in a net profit of | due to gains from the divestment of certain assets, a partial | |
S$88 million in FY 2022 | write-back of impairments on certain legacy rigs, and after | |
compared to a net loss of S$225 | ceasing depreciation of relevant assets that have been | |
million in FY 2021. Why did | classified under disposal group held for sale. | |
Keppel decide to exit the O&M | ||
business given the improving | The restructured KOM, which has since been combined with | |
market conditions? | Sembcorp Marine (SCM), registered a net loss in FY 2022, | |
due mainly to provisions for cost overruns on certain projects | ||
in the United States. | ||
Earnings from Keppel's O&M business had been very volatile | ||
in recent years2. Over the past five years, it ranged from a net | ||
profit of S$157 million in 2019, to a net loss of S$768 million | ||
in 2020. On average, the O&M business sustained an annual | ||
net loss of S$178 million from FY 2018 to FY 2022. |
- Includes Keppel Logistics' businesses in Singapore, Malaysia, Vietnam and Australia, as well as
UrbanFox. - Does not include effects of out-of-scope assets as well as intercompany loan interest expense and fee charges.
2
Through the combination of KOM and SCM, Keppel | |||
recognised a disposal gain of approximately S$3.3 billion3. | |||
Together with the vendor notes issued to Keppel from the | |||
sale of the legacy rigs to Asset Co, for which we will be | |||
repaid over time, as well as the out-of-scope assets, Keppel | |||
is unlocking close to S$9.4 billion of value from the O&M | |||
transactions. | |||
Keppel delivered a total shareholder return (TSR) of 49.3% | |||
for the whole of 2022, compared to Straits Times Index's | |||
(STI) 8.4%. Significantly, Keppel's TSR reached 77.7%, | |||
compared to STI's 9.2%, over a 15-month period from | |||
January 2022 to end-March 2023, following the completion of | |||
the O&M transactions and the distribution in specie of SCM | |||
shares to Keppel shareholders. | |||
In addition, we are able to replace the volatile earnings of the | |||
O&M business with stable interest income from the vendor | |||
notes issued by Asset Co for KOM's legacy rigs and | |||
associated receivables. | |||
The vendor notes come with a coupon rate of 4% that | |||
translates into approximately S$170 million of interest income | |||
per annum. We will also benefit from a redemption premium | |||
equal to 5% of the outstanding principal amount if and when | |||
the vendor notes are redeemed. | |||
More importantly, notwithstanding improving market | |||
conditions, we do not think the O&M business has a good fit | |||
with Keppel's Vision 2030 plans, which sees us moving away | |||
from lumpy orderbook and property development businesses | |||
and focusing on growing recurring income and building | |||
scalable businesses that leverage our asset-light model. | |||
3 | With the KOM divestment | In our next phase of growth, we are driving Keppel's | |
completed, what will Keppel's | transformation to be a global asset manager and operator, | ||
key business be in future? | which harnesses our strong capabilities in the areas of | ||
energy & environment, urban development and connectivity. | |||
Can you share more details of | |||
Keppel's transformation plans? | Building on the Group's strong domain knowledge and | ||
operational expertise, we will continue expanding in areas | |||
such as renewables, clean energy, decarbonisation solutions, | |||
sustainable urban renewal as well as connectivity, by | |||
leveraging our asset-light model. | |||
With the growing global focus on sustainable development | |||
and climate change, we believe that Keppel is in the right | |||
space at the right time. We will continue to make | |||
sustainability our business by investing in and creating | |||
sustainability solutions that can help our customers and other | |||
stakeholders on their progress towards Net Zero. | |||
3 Arising from the combination of KOM and SCM, based on the value of assets and liabilities of KOM (as Disposal Group) as of 28 February 2023, the gain on disposal recognised in the profit or loss on the date of completion is approximately S$3,300 million. The gain on disposal is subject to adjustment for any reimbursement by the Company to KOM for certain expenditures incurred by KOM before the completion of the combination, relating to assets sold by KOM to Asset Co to the extent that such expenditures are in excess of an agreed sum.
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4 | How will Keppel differentiate | Keppel has a strong track record for managing funds and |
itself and compete with other | playing a fiduciary role in looking after investors' interests. | |
global asset managers? | This, coupled with our strong operating capabilities in energy | |
and environment, urban development and connectivity | ||
solutions, present a strong value proposition to investors of | ||
our private funds and listed REITs and business trust. | ||
As one integrated business, we are adopting a horizontal | ||
'cradle-to-maturity' approach in evaluating opportunities, from | ||
the initial investment in both greenfield and brownfield | ||
projects, to the design and development followed by the | ||
operation and maintenance phases, to their possible injection | ||
upon maturity into a REIT or business trust managed by | ||
Keppel. Our business model allows us to enjoy multiple bites | ||
of the cherry from different earning streams, and also | ||
enables us to scale up without relying just on our balance | ||
sheet. | ||
BUSINESS AND OPERATIONS | ||
S/N | Question | Response |
5 | How will Keppel navigate the | Despite the volatile macro environment, there continues to be |
current volatile geopolitical and | strong demand for the assets that Keppel invests in, or which | |
economic environment? | we develop and operate, such as renewables, clean energy, | |
decarbonisation solutions, sustainable urban renewal and | ||
connectivity solutions. With the growing global focus on | ||
sustainable development, climate change and digitalisation, | ||
we believe Keppel is in the right space and at the right time to | ||
provide solutions which are good for the planet, people and | ||
the Company. | ||
Nevertheless, we are monitoring the geopolitical and | ||
macroeconomic situation closely, as they can adversely | ||
affect the global economy and international operating | ||
environment. | ||
In the meantime, we continue to strengthen our business | ||
resilience amidst rising interest rates. As at end-March 2023, | ||
about 69% of the Group's borrowings were on fixed rates, | ||
with an average interest cost of 3.39% and weighted tenor of | ||
about 3 years. | ||
We believe that Keppel is in a strong position to weather the | ||
challenging international environment as we press ahead | ||
with our Vision 2030 transformation plans. | ||
6 | Given the high interest rate and | Higher interest rates are a challenge that all companies face. |
cost of capital, how will Keppel | We remain cautious and disciplined in evaluating deals, and | |
acquire assets for its funds at | will ensure that all acquisitions meet our hurdle rates. | |
good value? | ||
Importantly, unlike pure financial investors, Keppel brings to | ||
the table our strong operating capabilities and technical | ||
know-how, harnessing the strengths of the Keppel ecosystem | ||
to add value to the assets and platforms that we create or | ||
acquire. To meet the needs of different investors, we are also | ||
able to create funds with various risk profiles, ranging from | ||
Core funds with mature cash flow generating assets that | ||
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have lower risks and cost of capital to Value-Added funds | ||
that provide the additional returns at moderate levels of risk. | ||
Our strong track record as an asset manager and operator | ||
makes Keppel a compelling partner for providers of capital. | ||
7 | With the lifting of COVID-19 | With the relaxation of China's zero-COVID policy as well as |
restrictions in China, is Keppel | the announcement of policies supportive of the real estate | |
seeing its performance in China | sector, we are optimistic about the long-term potential of the | |
improving? | Chinese market, especially in the key cities where we | |
operate. | ||
How is the management | ||
navigating the challenging | In the first few months of 2023, Keppel Land has already | |
property segment in China, | seen more positive signs, including an improvement in | |
especially as Keppel still has a | enquiries and home sales. As market conditions improve, we | |
lot of property developments | expect both home sales and asset monetisation of our | |
and investments in China? | landbank to gain further traction. | |
What are the expectations for | Importantly, Keppel Land is pivoting away from the traditional | |
the earnings in China this year | developer model. Building on Keppel's strong track record in | |
and moving forward? | the real estate business, we see opportunities to offer Real | |
Estate-as-a-Service to enhance our relevance in a world | ||
characterised by flexible work arrangements, climate action | ||
and where digitalisation is redefining the built environment. | ||
We are expanding into sustainable urban renewal and senior | ||
living, which are relatively resilient, compared to the | ||
residential real estate sector. While we do not provide | ||
forecasts of earnings, we remain confident about the long- | ||
term potential in the Chinese market, especially in the key | ||
cities where Keppel operates. | ||
8 | Keppel embarked on its first | Increasing life expectancy and rising affluence continue to |
senior living community in | drive the expansion of ageing populations and deepen focus | |
China. Will this be a profitable | on well-being and healthy ageing, boosting demand for | |
venture? What do the potential | senior living facilities with community-based services. | |
earnings look like? | ||
Keppel has built in-house capabilities across the senior living | ||
segment, including development and operational expertise, | ||
coupled with the experience from our investment in | ||
Watermark Retirement Communities in the United States. | ||
We are on track to commence operations in our senior living | ||
facility in Nanjing by end-2023, having finalised our facility | ||
design and are making good progress on the set-up of our | ||
operating team and systems. | ||
We believe that the senior living sector presents growth | ||
opportunities and is aligned with Keppel's Vision 2030 | ||
strategy to be asset-light and focus on growing recurring | ||
income. | ||
9 | Is the performance of Keppel's | The Group's recurring income from infrastructure services |
infrastructure business | tripled from S$99 million in FY 2021 to S$309 million in FY | |
sustainable with energy prices | 2022. | |
trending lower? | ||
In addition to electricity and gas sales, Keppel Infrastructure | ||
also derives recurring income from the operation and | ||
maintenance of essential infrastructure as well as through | ||
offering Energy-as-a-Service (EaaS) on long-term service | ||
contracts with building owners and customers. | ||
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Keppel Corporation Ltd. published this content on 15 April 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 24 April 2023 03:46:01 UTC.